ECN504 – Intermediate Microeconomics I Assignment 2

ECN504 Intermediate Microeconomics IAssignment #2Due: February 17, 2017Student full name:Student ID#: Question #1Choose one utility function from the following Cobb-Douglas utility functions:a)b) (( )) c) ( ) d) ( ) ??? Suppose x is on the horizontal, y is on the vertical axis.a) Assign numbers for Px and Py and the income for x and y. (For example, Px=$5, Py=$1,I=100, etc.) (1 point)b) Find the optimum consumption bundle by using any of the 3 methods we learned in theclass. (7 points) Question #2In this question you are asked to create a utility function and to find the optimum consumptionbundle.a) Find an example of two perfect substitute goods (please do not use the examples we usedin the lectures, quizzes, etc.). Try to find your own unique example. (2 points)b) Assign a number to the MRS for the consumer utility over the two substitute goods (1point)c) Draw the utility curve and explain what that number (MRS) means.( 4 points)d) Write down the utility function by using the MRS number. (5 points)e) Assign a number to each price (you will make two price numbers). (1 point)f) What is your optimal bundle? Do you get a corner solution or multiple optimal bundles?Explain your answer. (7 points) Page 1 of 2 Question #3Show that all members (for perfect substitutes, perfect complements, Cobb-Douglas) of the CESutility function represent tastes that are homothetic by drawing graphs and showing the MRSs inthe respective graphs. (Hint: show each function is a homogenous function.) (12 points) Page 2 of 2